Kathamandu (Reuters) Raj Regmi will replace Maoist Prime Minister Baburam Bhattarai and head the new administration until a national election is held, the parties said.

The appointment is expected to end a stalemate which has left the Himalayan republic without a parliament for nearly a year. It increases the chances of an early election in June to choose an assembly to complete the drafting of Nepal's first constitution after the abolition of the 239-year-old monarchy in 2008.

"The country is now headed to elections. The uneasy political period is over," said Ram Chandra Paudel, a senior leader of the centrist opposition Nepali Congress party.

The appointment of Regmi, the chief justice of the Supreme Court, is seen as a compromise solution worked out by the country's feuding political parties, who were unable to agree on a political candidate for the job.

The opposition had demanded that Bhattarai, a former Maoist rebel leader, quit in favour of a caretaker government to oversee delayed elections.

"Political parties have handed an agreement to the president to remove constitutional hurdles and appoint the chief justice as chairman of the interim election council of ministers," Deputy Prime Minister Narayan Kaji Shrestha said.

President Ram Baran Yadav is expected to administer the oath of office to Regmi on Thursday, his office said.

Nepal has struggled to rebuild itself after a decade of civil war that ended in 2006, leaving more than 16,000 dead.

The country has been without a parliament since last May when the term of a special assembly expired without completing a draft of the new constitution. An election had been scheduled for last November.

The ongoing political instability has had a damaging effect on the country's economy, which still relies heavily on foreign aid and tourism after the civil war.

Business leaders say more than 10 percent industries have scaled down production or closed since last year as the government has failed to control extortion, abductions and the killings of business leaders by criminal gangs.

Regmi, 63, will appoint a cabinet consisting of up to 11 retired civil servants. He is expected to name the cabinet on Thursday or Friday.

Although able to retain his judicial position, he will not participate in court hearings while leader of the government, but he will be allowed to return to his old job once a new government takes power after the vote.

However, several small political groups have vowed to protest against his appointment, which was agreed in a deal between Nepal's four main political parties last month.

Prominent lawyers have also questioned the decision, saying it undermined the role of political parties and ignored the principle of the separation of powers between the judiciary and the executive.

The Supreme Court is due to begin hearing two petitions on Thursday against Regmi's appointment.